Acc 3010

Question 1

Sole Proprietorship

Answer 1

• Simple to establish
• Owner-controlled
• Tax Advantages (taxed as owner is)
• Complete liability

Question 2

Partnership

Answer 2

• Simple to establish
• Shared control
• Broader skills & resources
• Tax advantages

Question 3

Corporation

Answer 3

• Easier to transfer ownership
• Easier to raise funds (money comes from common stock & expand ownership to public. Can also borrow)
• No personal liability (If someone sues a SP or partnership, they can take personal assets, not just business assets, where when suing the corporation, they can take only take business assets)

Question 4

Sarbanes-Oxley Act (SOX

Answer 4

Corporate leaders must put in writing that they were responsible and understood the numbers in financial statements & requires auditors to look at more than just financial info, must look at internal control for fraud

Question 5

Name the 3 types of business activity

Answer 5

Financing
Investing
Operating

Question 6

Liabilities

Answer 6

Amounts that are owed to creditors

Question 7

Creditors

Answer 7

Party to whom amounts are owed

Question 8

Common Stock

Answer 8

term used to describe the amount paid by stockholders for shares they purchase.

Question 9

Dividends

Answer 9

Payments to stockholders from the company (Financial activity)

Question 10

Assets

Answer 10

Resources owned by a business

Question 11

Revenues

Answer 11

Amounts earned from the sale of products and other sources (sales revenue, service revenue and interest revenue), not necessarily cash

Question 12

Expenses

Answer 12

Cost of assets consumed, or services used (Cost of goods sold, selling, marketing, administrative, interest and income taxes expense) not necessarily cash

Question 13

Net Income

Answer 13

When revenues exceed expenses

Net Income is needed to determine the ending balance in retained earnings

Question 14

Net Loss

Answer 14

when expenses exceed revenues (common among startup companies)

Question 15

Four financial statements in logical order

Answer 15

1. Income Statement
2. Retained earnings statement
3. Balance sheet
4. Statement of cash flows

Question 16

Income Statement

Answer 16

Reports net income, net loss, REVENUES and EXPENSES for a specific period of time (nothing longer than a year)

• Heading includes name of company, the type of statement, the date (period of time)

Question 17

Balance Sheet

Answer 17

Reports assets and claims to assets at a specific point in time

Assets = Liabilities + Stockholders’ equity

Lists assets first, followed by liabilities and stockholders’ equity

Only shows the exact day, not time period

Question 18

Statement of Cash Flows

Answer 18

• Looks at cash flows of the company and what activity generates these cash flows
• Cash on the Balance sheet must match cash at the end of the period on Statement of Cash Flows sheet
• Looks at changes in cash during the period

Question 19

Assets (accounting equation)

Answer 19

(“Stuff” aka cash, accounts receivable, trucks, buildings, stuff we own and use with the business)

Question 20

Liabilites (accounting equation)

Answer 20

Creditors, borrowed money to buy assets, creditors now have claims against the business for amounts we borrowed from them

Question 21

Equity

Answer 21

everything we own either has a claim to it by the creditor or is owned by the owner

Question 22

Annual Reports

Answer 22

U.S. companies that are publicly traded must provide shareholders with an annual report

1. Financial Statement (shows the numbers)
2. Management discussion and analysis (management’s story, not audited, but reviewed, basically says how they got cash, what they did with it, etc.)
3. Notes to the financial statements (process, rules, guidelines, choices that company makes)
4. Auditor’s report (independent, 3rd party to come and evaluate and offer opinion on financial information)

Question 23

When preparing an income statement, which of the following is the proper order for income statement components?

Answer 23

Irregular items, Net income, Other comprehensive income items, Comprehensive income

Question 24

An income statement would not include

Answer 24

Dividends paid

Question 25

Extraordinary items are reported on the income statement immediately

Answer 25

after discontinued operations.